Over the last six months, Unum Group’s shares have sunk to $75.90, producing a disappointing 7% loss - a stark contrast to the S&P 500’s 16.5% gain. This was partly due to its softer quarterly results and might have investors contemplating their next move.
Is now the time to buy Unum Group, or should you be careful about including it in your portfolio? Get the full breakdown from our expert analysts, it’s free.
Why Is Unum Group Not Exciting?
Even though the stock has become cheaper, we're swiping left on Unum Group for now. Here are three reasons why UNM doesn't excite us and a stock we'd rather own.
1. Net Premiums Earned Point to Soft Demand
When insurers sell policies, they protect themselves from extremely large losses or an outsized accumulation of losses with reinsurance (insurance for insurance companies). Net premiums earned are therefore net of what’s ceded to reinsurers as a risk mitigation and transfer strategy.
Unum Group’s net premiums earned has grown at a 2.8% annualized rate over the last five years, much worse than the broader insurance industry.
2. Projected Revenue Growth Is Slim
Forecasted revenues by Wall Street analysts signal a company’s potential. Predictions may not always be accurate, but accelerating growth typically boosts valuation multiples and stock prices while slowing growth does the opposite.
Over the next 12 months, sell-side analysts expect Unum Group’s revenue to rise by 1.9%, a slight deceleration versus its 4.2% annualized growth for the past two years. This projection is underwhelming and suggests its products and services will face some demand challenges.
3. EPS Barely Growing
We track the long-term change in earnings per share (EPS) because it highlights whether a company’s growth is profitable.
Unum Group’s EPS grew at an unimpressive 9.1% compounded annual growth rate over the last five years. On the bright side, this performance was better than its 1.8% annualized revenue growth and tells us the company became more profitable on a per-share basis as it expanded.
Final Judgment
Unum Group isn’t a terrible business, but it doesn’t pass our bar. After the recent drawdown, the stock trades at 1.1× forward P/B (or $75.90 per share). This valuation is reasonable, but the company’s shakier fundamentals present too much downside risk. We're fairly confident there are better stocks to buy right now. We’d suggest looking at the Amazon and PayPal of Latin America.
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